UK Consumer Spending Declines Further, U.S. Credit Surpasses 2008 Record, German & Chinese Imports / Exports Fall, more…


As economic data contracts across the world, the geopolitical tension between the United States and North Korea continues to gather pace. Whilst the media concentrate minds towards the personalities of Donald Trump and Kim Yong Un, the economic consequences of an outbreak of conflict are gaining scant coverage. What is clear is that an escalation of violence will very likely disrupt trade between the East and the West, a symptom that will impact negatively on the economy.

As ever, geopolitical triggers should not be seen in isolation. The behaviour and intended actions of central banks, coupled with the overriding narrative of ‘normalising’ monetary policy, escape inquisition when conflict develops between world powers. Therefore, decisions emanating from political circles today will automatically be perceived and reported on as the cause of an economic downturn. The Presidency of Trump and the UK’s Brexit process – and the actions stemming from those two triggers – serve the same purpose.

The removal of monetary stimulus is a process that is already underway. The fact that geopolitical tensions are building as the Federal Reserve prepare to start downsizing their balance sheet is, in my view, beyond the bounds of coincidence.

The Hill: How a renewed Korean conflict is going to be felt around the globe

  • What will the president have to consider before he launches a preventative attack on North Korea?
  • The effects would be felt worldwide and immediately as South Korea is a vital part of the global supply chain for high technology equipment, both as end products and parts used by other manufactures. Nor is it likely companies in other countries can quickly pick up the slack: it is estimated that the replacement cost of the display manufacturing capability of Samsung and rival LG will top $50 billion.
  • Shipping in the nearby Sea of Japan, East China Sea, and Yellow Sea will halt as there may no longer be a destination for the cargo, and spiking maritime insurance rates, if insurance can be had, will make most voyages unprofitable. Shipping to and from major Chinese ports such as Dalian, Qingdao, Shanghai, and Tianjin will halt and disrupt worldwide supply chains.

Reuters: UK exports disappoint as economy limps to end of weak first half

  • Britain’s economy put in a weak performance in June when declines in car manufacturing, construction and exports gave an uninspiring end to the weakest first half of any year since 2012.
  • The Bank of England has said it is counting on a recovery in exports to help lift growth in the economy.
  • Britain’s goods trade deficit jumped to a nine-month high of 12.7 billion pounds ($16.5 billion) in June from 11.3 billion pounds in May. Car production recorded its biggest quarterly fall since 2011 and construction declined by the most since 2012.

Zero Hedge: US Credit Card Debt Surpasses Financial Crisis Record, As Student And Auto Loans Hit New All Time High

  • The monthly update from the Federal Reserve confirmed that as of the end of June, total revolving (i.e. credit card) credit rose to $1,021.7 billion, an increase of $4.1 billion on the month, and a new all time high, taking out the previous record high set during the summer of 2008.
  • Total consumer credit in June increased by $12.4 billion, slightly less than the $13.9 billion expected and modestly less than the $18.4 billion increase in May, to $3,855.8 billion, also a record high.
  • For another consecutive quarter, both student and auto loans hit record highs, of $1.450 trillion and $1.131 trillion respectively, although there does appears to be a modest slowdown in credit issuance for these two largest categories.

BBC: UK Consumer spending falls for third month, says Visa

  • UK consumer spending fell for the third month in a row in July, according to research from credit card firm Visa.
  • Compared with the same month a year ago, spending fell by 0.8%, slightly faster than the 0.2% decline in June.
  • Spending has now dropped for the past three months, marking the longest falling streak in over four years.
  • Transport and communications spending, which dropped by 6.1% year-on-year, and clothing and footwear, which fell by 5.2%, saw the biggest decreases.
  • Food and drink spending was down by 0.5% annually, while spending on household goods fell by 4%.

Bloomberg: Fed’s Bullard Says Low Inflation Warrants Keeping Rates on Hold

  • Federal Reserve Bank of St. Louis President James Bullard said interest-rate policy should be left on hold after “unexpectedly low” price data suggested that inflation may not be on track to rise to the U.S. central bank’s 2 percent target.
  • “Recent inflation data have surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target,” Bullard said Monday in Nashville, Tennessee, according to the text of his prepared remarks. “The current level of the policy rate is likely to remain appropriate over the near term.’’

Reuters: China July exports, imports weaker than expected, cloud global outlook

  • China’s exports and imports grew much less than expected in July, raising concerns over whether global demand is starting to cool even as major Western central banks consider scaling back years of massive stimulus support.
  • China and Europe have been driving an increasing share of global growth this year as political conflict stymies stimulus policies being pushed by U.S. President Donald Trump.
  • China’s export growth slowed to 7.2 percent in July from a year earlier, the weakest pace since February and cooling from an 11.3 percent rise in June.
  • China’s imports rose 11.0 percent, the slowest growth since December and down from a 17.2 percent rise in the previous month.

RTE: German exports fall more than expected in June

  • German exports fell more than expected in June and imports sank even more sharply, widening the trade surplus in Europe’s biggest economy.
  • Seasonally adjusted exports dropped by 2.8%, the sharpest fall since August 2015 that ended five consecutive months of growth.
  • Imports were down 4.5%, the biggest drop since January 2009, data from the Federal Statistics Office showed.

Digital Look: German industrial production falls for the first time in 2017 in June

  • German industrial output retreated in June for the first time in 2017, weighed down by falling capital goods and
  • Total production shrank by 1.1% month-on-month, according to the Federal Office of Statistics, almost fully reversing a 1.2% rise in the month before.
  • Factory output was the weak link in the chain, falling by 1.4% versus May. Within that, capital goods output decreased by 1.9%, that of intermediate goods by 1.2% and that of consumer goods by 0.7%.
  • Construction output was also weaker, diminishing by 1.0% on the month.
  • Energy production on the other hand rose by 1.4%.

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